Management’s tone in the AR is enthusiastic across segments. Debtor days are flat year-on-year (y-o-y) and the inventory days’ rise reflects the March-end lockdown impact on the cooling segment. Company has embarked on cost reduction with fixed costs in other expenses at 3.9% of sales in FY20 vs 5.1% in FY17 and 4.7% y-o-y. Ad spend and travel is 1.6% of revenues. This and 112 bps additional provision for bad debts y-o-y in FY20 gives a cushion to margins in a difficult FY21E.
Gaining share across most segments. Smart Thinking, Winning Attitude, Innovative, Flexible, Teamwork (SWIFT) is highlighted in the AR as Voltas’ cultural pillar. Its inverter air-conditioner (AC) market share is 22% in FY20 vs 17% y-o-y and just 8% in FY18 in-line with customer focus on saving electricity costs. It has 40% share in e-commerce sales and overall AC market share of 24% (up 50 bps y-o-y). They are 2% share in the washing machine and refrigerator category within 18 months of starting operations. Spinning machinery market share in engineering products has risen to 55% from 52% y-o-y. 57% y-o-y order book growth is above market average and a healthy mix of water, metro, airport, solar and general projects.
Fixed costs 12.6% of FY20 sales — Rs 9.7 billion including employee expenses. Voltas has been moving its employees from permanent to contract workforce for a while. FY20 employee strength is up 7% y-o-y but on books staff is down 4%. AR mentioned that given the subdued demand, material prices have come down and savings are expected to accrue on future project sourcing in engineering. NWC flat y-o-y as a percentage of sales. Cash and available liquid financial investments is 39% of B/S, with management focused on monetising sales and executing projects only where cash flow is healthy. Customer advances is up 103 bps y-o-y and partly offset the rise in inventory days.